The Indian economy is passing through a stage of slowdown. The downward trend can be one of the cyclical slowdown or on a deeper end can be a structural slowdown. The reasons contributing to a falling GDP are many, let’s have a glance at the situation.
An economy works on the vicious circle of consumption, savings and investments. Hindrance in the flow of any one of these can cause an upward or downward trend in the economy. At present, the world as a whole is facing recession and India can not remain unimpacted. The tension between the US and China on trade issues have made exports a hurdle, India is likely to face trouble in its pharmaceutical exports as US is planning to impose trade barriers on its trade with India.
Many countries including India are going to be affected by the intractable slowdown in China due to its size and global importance. The GDP growth rate of India is estimated to be registered at one of the lowest rates, that is below 5.8 percent for the first quarter of FY20.
Germany, Britain and Italy are also showing signs of lower GDP growth rate.
The gradual lowering of the prices over a period might be pleasurable to the consumers but it is not at all good for the economy in the long run as it shows a decreased demand which discourages new investments and job creations as well. The corporate wages are not showing appropriate growth in FY19 as compared to the growth trends a few years back. This has led to low consumption and now leading to declining savings and investments. All the sectors, especially the auto sector is going through a crisis-like situation due to the decline in sales and heaping inventories. The crisis can lead to lower production pattern and unemployment in the market. The biscuit makers (like Britannia and Parle) too are complaining about the decline in their sales and are reporting risk to the employment of about 10,000 workers. The critics are blaming the implementation of GST back in 2017 and are considering that the poorly designed plan has backfired.
The liquidity crisis in India may be a cyclical issue and can be resolved by RBI’s fiscal and monetary policies. In spite of that India as a fast developing economy has been longing for some major structural changes which the changing governments haven’t paid much heed to. The IL & FS default (Infrastructure Leasing & Financial Services Limited) calls for the simplification of land acquisition laws in the country. The market for labour and land must be made flexible, the institutions and the financial sector need to be independent, as they are crippled by the state run banks, privatisation of sick units like Air India need to be taken seriously because the investments done by the government need to bring higher returns
otherwise, the private investments will be discouraged. Though the situation in India is not like that was faced in 1991 but still, the slowdown is worrying.
The second half is assumed to be good for the economy and banking as the upcoming festive season and the increased spending by the government may uplift the demand in the economy.
The government’s claims of India being in safe hands are a little shaky at the moment and a few more bad quarter reports may erode the confidence of people in the Indian economy’s growth and if that happens a govt. obsessed with its image will have to accept the harsh reality….